401(k) is an employer-sponsored retirement plan that employers offer to employees in the US. The simplest way to start a 401(k) plan is through your employer.
If you open a 401(k) when you are young, it has the potential to earn more money for you, thanks to the power of compounding! Let’s explore the nuances of both the plans to empower you and your clients in making informed choices.
Understanding the Basics: Traditional 401(k) vs. Roth 401(k)
Employers usually give a choice between traditional 401(k) and Roth 401(k). Roth 401(k) is a post-tax retirement savings account. It involves contributions made with
after-tax dollars, meaning no immediate tax benefits. However, qualified withdrawals, including earnings, are tax-free during retirement. This means your contributions have already been taxed before they go into your Roth account.